Qualified dividends are dividends paid by domestic (U.S.) corporations or qualified foreign corporations that meet specific holding period requirements — taxed at the same preferential rates as long-term capital gains.
Tax rates (2025): - 0% — for taxpayers in the 10%–12% ordinary income brackets. - 15% — for most middle and upper-middle income taxpayers. - 20% — for the highest-income taxpayers (+ 3.8% NIIT if applicable).
Requirements to be "qualified": 1. Paid by a qualifying company: U.S. corporation, or a qualified foreign corporation (incorporated in a U.S. possession, or stock traded on a U.S. exchange, or from a country with a U.S. tax treaty). 2. Holding period: You must have held the stock for more than 60 days within the 121-day period that begins 60 days before the ex-dividend date (for preferred stock: more than 90 days in a 181-day window).
Non-qualified (ordinary) dividends: - Dividends from REITs (Real Estate Investment Trusts) — taxed as ordinary income. - Dividends from money market funds (treated as interest). - Dividends from certain foreign corporations. - Special one-time dividends that don't qualify.
REIT dividends exception: REIT dividends are generally ordinary income (not qualified), but a 20% deduction under Section 199A may apply (pass-through deduction) for eligible taxpayers.
> Exam tip: Qualified dividends = long-term capital gains rates. The holding period requirement (60 days before/after ex-date) is a key nuance. REIT dividends are not qualified — they're ordinary income. Tested on CFP® and EA Part 1/2.